Microinsurance Country Diagnostic & Stakeholder Dialogue in Nigeria Stakeholder meeting Abuja, Nigeria 24 October 2012 Denise Dias, Denis Garand, Yemi Soladoye Consultants
The Country Diagnostic Report Agenda Project overview Demand-side: findings Supply-side and regulation: findings Recommendations
Purpose of Project Identify drivers, opportunities and barriers for insurance market development in Nigeria Develop appropriate recommendations for policymakers, the regulator and market participants Stimulate dialogue and increased engagement of stakeholders from supervisor to industry) Develop common understanding of future challenges and opportunities Develop action plan for market development in Nigeria 3
Partners Steering Committee Methodology and technical quality control International experience and cross-country exchange of learning Definition of scope Leadership Funding Contact for NAICOM Funding Project Management Link to Partnership s network Funding 4
Timeline: The last 13 months... Definition of project scope and Terms of Reference (first meeting in Abuja Sept 2011) Kick-off workshop and stakeholder interviews (May 2012) Analysis of information (findings and recommendations) Presentation and discussion of findings and recommendations Finalize report Development of an action plan.?? 5
Context Infrastructure Methodology Demand Supply [players, products, distribution] Drivers Opportunities & challenges Strategic recommendations Regulation + ICP Assessment Macro, meso, micro 6
Methodology Context & infrastructure Regulatory framework Current market Demand Supply Future market: Enhanced access to insurance Diagnostic Study Strategy/ actions: Market Regulation 7
Methodology: Sources of Information Primary Sources Stakeholder interviews: broader context, regulation and policy, underlying drivers of market development Qualitative demand-side research: knowledge/perceptions of and experience with insurance, risk mitigation needs Secondary Sources Available literature on Nigeria s insurance and broader financial sector, market developments and dynamics, and insights of demand for and experience with insurance 8
Methodology: Stakeholder Interviews Interviews and discussions with more than 40 different organizations (public and private), such as NAICOM, Nigeria Agricultural Insurance Corporation (NAIC), Central Bank of Nigeria (CBN), National Health Insurance Scheme (NHIS), Federal Ministry of Finance, Nigeria Insurance Association (NIA), National Planning Commission, Acción MFB, AIICO, Airtel, Coop Exchange Investment Trust, Cornerstone, EFInA, FinSurance, First Bank, Fortis Mobile Money, GTA, Halal Takaful Nigeria, Hasal, Hollard, HR Nigeria Limited, IGI, Lapo, Leadway Assurance Ltd., AB Microfinance Bank, MicroCred, MicroEnsure, Mutual Benefits Assurance Plc, MTN, NICON, Niger Insurance, Pagatech, Sovereign Trust Insurance, UNIC, Unity Kapital, ANMFI, Chartered Insurance Institute of Nigeria, Eagles of Multipurpose Coop, Federal Directorate of Cooperatives, National Association of Microfinance Banks, National Cooperative Insurance Association, Nigerian Council of Registered Insurance Brokers, 9
The Country Diagnostic Report Agenda Main findings: The Insurance Industry (Mr Denis Garand) Main findings: Policy and Regulation (Ms Denise Dias) Recommendations Discussion
Main Findings: The Insurance Industry First impressions corroborated by Vision 2020 statement Vision 2020: the insurance sector has many weaknesses, including poor product innovation; lack of skills and manpower; and poor public perception A grossly untapped opportunity 1% of adult population has an insurance policy Microinsurance is virtually unexplored with only a few providers experimenting
Main Findings: The Insurance Industry Key characteristic of the market today -Too many competitors focusing on too few clients, pushing operating expenses (particularly commissions) up We all run after the same NNPC business; head of service account and such major accounts. So, the investment in infrastructure, technology that is needed to build a sustainable business model is not focused on because we don t have the money to do that. So, there is the potential for business volume far beyond the level of capital that we have. (MD of an insurance company) Source: Microfinance Africa, October 3, 2012 http://microfinanceafrica.net/tag/developing-microinsurance-in-nigeria/
Main Findings: The Insurance Industry Key measures/indicators for an insurance market Participation Rate Claims Ratio Expense Ratio Net Income 14
Insurance regulated by NAICOM Main Findings: The Insurance Industry Industry overly reliant on corporate and compulsory accounts Overall low claims ratio (around 25%) Expense ratios are high in many companies Small portfolio of voluntary products (e.g., less than 1.5 million in total). Mostly group life The industry recognizes its tainted reputation and the lack of public trust Lack of reliable data and transparency in commissions paid 33% of premium profitability 59 insurers, 2 re-insurers NGN201 billion in premium (2010) = 0.72% of GDP
Premium as a percentage of GDP Main Findings: The Insurance Industry Premium as a percentage of GDP South Africa (2010) 16,00% Japan and newly industrialized Asia (2011) 11,30% Namibia (2007) Advanced World Markets (2011) 8,90% 8,58% Africa (2011) Botswana (2007) Kenya (2009) South and East Asia (2011) 3,62% 3,50% 3,40% 3,04% Zambia (2007) Angola (2007) Middle East and Central Asia (2011) Mozambique (2010) Phillippines (2011) Nigeria (2010) Uganda (2010) Ethiopia (2007) 1,70% 1,60% 1,48% 1,32% 1,00% 0,72% 0,65% 0,20% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 16
Claims ratio by countries Main Findings: The Insurance Industry Country Reporting year Claims ratio Nigeria 2010 24% Kenya 2010 59% Tanzania 2010 50-60% Uganda 2010 Life: 63% Non-Life: 44% South Africa 2010 91% Egypt 2010-11 Direct Claims: 73% Net Retained: 82% Mozambique 2010 59% Ethiopia 2008 65% 17
Main Findings: The Insurance Industry Expense ratio Expense Ratio Range Number of companies <10% 8 10-20% 11 21-30% 7 31-40% 6 41-50% 4 51-60% 2 61-70% 1 71-80% 1 81-90% 0 91-100% 1 No ratio provided 3 Total 44 18
Health insurance regulated by NHIS Main Findings: The Insurance Industry Mostly limited to mandatory coverage of formal companies with more than 10 employees Current offer to informal sector is small and has not yet proved sustainability NHIS establishes a single capitation rate of NGN750 per month (USD4.65), regardless of where the health services are delivered Experience with community-based health insurance schemes still nascent, limited information available 3 mi employees covered MDC covers other 1.6 mi 2 small voluntary schemes covering <2,000
Main Findings: The Insurance Industry Agriculture insurance provided by NAIC 2010 gross premiums +/- NGN897mi 2010 claims just over 10% at NGN91.6mi Exclusive provider of government subsidized mandatory agriculture insurance (for selected crops/livestock) NAIC s experience with voluntary products indicates farmers are resistant to their products
Cooperative insurance Main Findings: The Insurance Industry National Cooperative Insurance Society Nigeria Limited (NCIS) is both regulator and provider of cooperative insurance There is lack of reliable statistics about cooperative insurance NCIS provides motor liability coverage to 70,000 members via 103 primary cooperatives Membership estimated at 3 million (lower than CFN s estimates)
Main Findings: The Insurance Industry Microinsurance Current offers don t really fit theoretical definition Lack of microinsurance expertise Growing interest in the retail business Some movement away from agent systems Acknowledgment by stakeholders of an unexplored and potentially very attractive market Innovative approaches may not only come from existing insurance companies
Main Findings: The Insurance Industry Microinsurance potential distribution systems MFIs, MFBs, Coops, Esusus, NGOs, NIPOST, Banks All these present challenges. Investment in infrastructure (IT), capacity building, and improved management and knowledge are all needed for these channels to be effective in distributing microinsurance Mobile payment systems Potential: mobile phones already reach large part of the adult population
Agenda Main findings: The Insurance Industry (Mr Denis Garand) Main findings: Policy and Regulation (Ms Denise Dias) Recommendations Discussion
Main Findings: Policy and Regulation - Several policies in financial sector, but no comprehensive strategy for microinsurance - Policy focus on compulsory insurance does not contribute to improving a) public perception and trust b) demand for voluntary products c) supply of and innovation in voluntary products Long-term development requires a comprehensive, consistent policy
Main Findings: Policy and Regulation - There are opportunities to improve the regulatory framework for microinsurance and market development more generally, although they are not the top priorities a) There is no microinsurance framework (draft) b) Minimum capital and operating standards and reporting requirements are too strict: high compliance cost c) Minimum market conduct standards (e.g., claims handling) can be improved to balance planned flexibility to encourage microinsurance
Comparison of minimum capital in selected countries Main Findings: Policy and Regulation
Main Findings: Policy and Regulation - Single national capitation rate for health insurance - Prohibition or lack of clarity for use of individuals and a wide range of financial (e.g., cooperatives) and nonfinancial entities (e.g., retailers) as insurance intermediaries - Agent commissions are regulated - NAICOM strategic plan proposes solutions to several regulatory, supervisory and organizational weaknesses - Drafts of microinsurance and Takaful regulations - Insurance Bill: good support for necessary regulatory changes
Agenda Main findings: The Insurance Industry (Mr Denis Garand) Main findings: Policy and Regulation (Ms Denise Dias) Recommendations Discussion The Way Forward: Implementation
Our Recommendations Microinsurance requires a change from traditional practice I know how to talk to them 30
Our Recommendations Microinsurance requires a change from traditional practice Do I know how to talk to them?? 31
Our Recommendations Main point: microinsurance requires a tailored approach, different from traditional insurance What is needed? Innovation, greater value to clients, good claim service, clear but not burdensome regulation and effective supervision
Our Recommendations The industry Capacity building Industry Innovative distribution Better products Better services First step is understanding the new business and new clients
Our Recommendations NAICOM regulation and supervision for an inclusive insurance sector Effective supervision Better industry data Product regs Specialized providers Better enforcement of rules and improved market conduct (e.g. capacity building and resources at NAICOM) Greater transparency, better market discipline (e.g., claims ratios by product category Encouraging innovation while limiting the risk (e.g., bundled MI products) Allow qualified MI and Takaful providers coming from outside the existing pool of insurers (e.g., lower capital for specialized providers)
NAICOM Institutional context - Invest in capacity building. To effectively oversee new markets such as microinsurance and Takaful, supervisors will need to acquire new expertise. Our Recommendations
Our Recommendations NAICOM regulatory measures - Create microinsurance framework - Improve market conduct and consumer protection rules - Create takaful framework, as additional product - Improve data on the industry, for greater transparency a) Define microinsurance; b) Composite products; c) Lower capital for microinsurers d) Risk-based capital for all e) Allow variety of Individuals and legal persons as intermediaries f) Simplified licensing g) Streamlined reporting
Our Recommendations - CBN: clarify CBN-regulated entities can be insurance intermediaries and are allowed to receive commissions - CBN: Revisit prohibition for MNOs to offer mobile payments platforms - NHIS: Revise the national flat capitation rate - Government and industry: explore potential link between microinsurance and welfare programs such as cash transfers - Education/awareness: not the priority at the moment, but can be added to strategy
Our Recommendations - Set up a coordination/steering committee, to design an Action Plan and oversee implementation
Our Recommendations Inclusive insurance in Nigeria is possible Opportunity: 1) Current very low market penetration means million of potential retail clients 2) Momentum with regulator committed to building an enabling environment for inclusive insurance The industry needs to reinvent itself to expand into new markets, design products that fit the needs of potential MI clients, and build a strong, positive public image based on good and fair practices and reliable services.
Agenda Main findings: Focus Group Discussions (Mr Yemi Soladoye) Main findings: The Insurance Industry (Mr Denis Garand) Main findings: Policy and Regulation (Ms Denise Dias) Discussion
Thank You 41